Why AXA’s $15 billion XL takeover makes sense - WSJ

AXA’s switch in focus from life to P&C insurance through the acquisition of XL Group might appear too radical a shift for some investors, but recent figures prove that the decision was a smart move.

First announced in March, AXA’s takeover of US-based XL Group brought the French insurer more exposure to hurricanes and debt. But that gamble has paid off – AXA recently announced during an investor day meeting that it is lifting targets for returns, cash generation and payouts.

Wall Street Journal suggests that AXA’s new targets are possible since the insurer’s shift away from life insurance “should generate more cash and free up capital.” While natural catastrophes could make earnings more volatile, the life insurance business is more exposed to the financial market and credit risks.

WSJ also reported that once AXA unloads the rest of its shares in AXA Equitable – the US-based life company it listed this year – it will have a much less volatile capital ratio under Solvency II regulations in Europe.

AXA noted that its business units will be able to pay 10% more cash every year. This means that the parent company expects to pay from 50% to 60% of its earnings as dividends – up from 45% to 55%.

All things considered, the insurer can expect surplus cash of roughly US$15.8 billion by 2020.

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